Passionate about IP! Since June 2003 the IPKat has covered copyright, patent, trade mark, info-tech, privacy and confidentiality issues from a mainly UK and European perspective. The team is Neil J. Wilkof, Annsley Merelle Ward, Nicola Searle, Eleonora Rosati, and Merpel, with contributions from Mark Schweizer. Read, post comments and participate! E-mail the Kats here

The team is joined by Guest Kats Rosie Burbidge, Stephen Jones, Mathilde Pavis, and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Hayleigh Bosher, Tian Lu and Cecilia Sbrolli.

Friday, 31 May 2013

In Case T‑396/11, ultra air v OHIM - Donaldson Filtration Deutschland, the General Court examined the applicability of the concept of 'abuse of rights', in relation to an application for a declaration of invalidity of a Community trade mark, under Articles 56(1)(a), 7(1)(b) and (c) of Regulation 207/2009. The Court annulled the decision of the Fourth Board of Appeal of OHIM, clarifying that, in light of the public interests enshrined in the above provisions, the motives and earlier conduct of the applicant cannot affect the scope of the assessment conducted by OHIM. Therefore, 'there can be no question of an abuse of rights on the part of the applicant for a declaration of invalidity'.

In 1999, ultrafilter GmbH (now Donaldson Filtration Deutschland GmbH) applied for registration of the word sign 'ultrafilter international', for goods and services in Classes 7, 11, 37, 41 and 42 of the Nice Agreement (essentially filters and devices for drying, cleaning and cooling air, gases and liquid, and related services for installation, repair and training). The examiner rejected the application ex Article 7(1)(b) and (c) of Regulation 40/94 (now 7(1)(b) and (c) of Regulation 207/2009), finding that the sign was descriptive and lacked a distinctive character. On appeal, however, it was found that the mark had become distinctive, within the meaning of Article 7(3), in the German and English-speaking member states. Consequently, the sign was registered as a Community trade mark (CTM) on 27 September 2005 (No. 1121839).

In 2008, ultra air GmbH filed an application for a declaration of invalidity of the CTM under Article 51(1)(a) of Regulation 40/94 (now Article 52(1)(a) of Regulation 207/2009), alleging infringement of Articles 7(1)(b) and (c) and 7(3). The Cancellation Division upheld the application, recognizing that the sign was descriptive and devoid of any distinctive character. The Fourth Board of Appeal, on 18 May 2011, annulled the decision rendered at first instance and declared the application inadmissible, as vitiated by an abuse of rights. The Board noted that, with its application, ultra air did not pursue the public interest objectives laid down in Articles 7(1)(b) and (c) and Article 7(3). Rather, the company seeked to use the sign 'ultrafilter' [which, says Merpel, is also a mathematical concept] itself as a trade mark, alone or in combination with other terms, and had resorted to the application for invalidity only after its own application for registration of a figurative CTM comprising the word 'ultrafilter' (No. 5329529) had been rejected. Proof of these hidden intentions, according to the Board, came from the fact that the manager of the applicant had previously defended the distinctive character acquired by the contested mark through use, when he was a manager of the CTM's proprietor company. Thus, the action amounted to an abuse of rights, as the application had sought to attain objectives other than those which are legitimate under trade mark law.

The applicant challenged the Board of Appeal's decision before the General Court, alleging infringement of Article 56(1)(a) of Regulation 207/2009 (and of Article 52(1)(a) - but this plea was swiftly rejected by the Court). Ultra air submitted that Article 56(1)(a) 'grants all natural and legal persons the right to lodge an application for a declaration of invalidity on the basis of Article 52 [...] without making that right subject to a balancing of the possible personal interests of the applicant for a such a declaration with the general interests safeguarded by that provision'. Therefore, an abuse of rights cannot preclude the examination of an application for a declaration of invalidity, and the Board should not have investigated, nor taken into account, the applicant's possible bad faith. The plea also argued that (1) Article 7(1) aims to prevent the monopolization of a sign vitiated by an absolute ground for refusal, and thus allows its free use without any abuse of rights, (2) the rejection of an application for registration of a trade mark cannot prevent the applicant from lodging an application for a declaration of invalidity of a similar sign, and (3) considerations on the manager's behaviour were manifestly irrelevant.

The General Court first observed that the application for a declaration of invalidity under Article 56(1)(a) of Regulation 207/2009 'is an administrative procedure and not a court action' [to the effect that, as noted in Case C‑408/08 PLancôme v OHIM, the application is not subject to the rules of admissibility applicable to judicial proceedings]. It then highlighted the differences between the requisites of admissibility for the actions laid down, on one hand, in Article 56(1)(a), and, on the other, in Articles 56(1)(b) and (c):

Article 56(1)(a) provides that an application for a declaration of invalidity based on an absolute ground for invalidity may be submitted by any natural or legal person and any group or body set up for the purpose of representing the interests of manufacturers, producers, suppliers of services, traders or consumers, which has the capacity in its own name to sue and be sued, whereas Article 56(1)(b) and (c), concerning applications for a declaration of invalidity based on a relative ground for invalidity, reserves the right to make such an application to certain specific persons who have an interest in bringing proceedings. Consequently, it is apparent from the scheme of that article that the legislature intended to restrict the group of persons able to apply for a declaration of invalidity in the latter case, but not in the former.

Abuse of rights? Get out of here!

In this perspective, Article 56(1)(a), read in conjunction with Article 52(1)(a), establishes an administrative procedure that enables OHIM to review the validity of a CTM registration, in order to protect, inter alia, the public interests enshrined in Articles 7(1)(b) and (c). The former provision prevents the registration of non-distinctive signs, which cannot fulfil the essential function of a trade mark; the latter ensures that 'descriptive signs relating to one or more characteristics of the goods or services in respect of which registration as a mark is sought may be freely used by all traders offering such goods or services' (see Case C‑173/04 PDeutsche SiSi-Werke v OHIM, and Case C‑191/01 POHIM v Wrigley). Thus, the motives and earlier conduct of the applicant cannot affect the scope of the assessment conducted by OHIM in light of these provisions: the rejection of the application for invalidity due to an abuse of rights would prevent the examination of the substance of the plea and defeat the objectives and function of Articles 7(1)(b) and (c). The Court added:

Given that, in applying the provisions at issue in the context of invalidity proceedings, OHIM does not rule on the question whether the rights of the proprietor of the mark take precedence over any rights which the applicant for a declaration of invalidity might have, but ascertains whether the rights of the proprietor of the mark were validly obtained in the light of the rules governing the registrability of marks, there can be no question of an ‘abuse of rights’ on the part of the applicant for a declaration of invalidity.

Applying the above reasoning, and relying on Article 52(1) (which allows the defendant in an infringement proceeding to bring a counterclaim for invalidity), the General Court observed that the fact that a party may file an application for a declaration of invalidity, with a view to subsequently use the contested sign, is compatible with the public interest safeguarded by Article 7(1)(c), and cannot amount to an abuse of rights in any circumstances. Similarly, considerations on the role and conduct of the manager of the applicant cannot affect the right to bring an action under Article 56(1)(a): a similar conclusion would be incompatible with the public interest. From a more general perspective, the Court noted that the admissibility or validity of an application for a declaration of invalidity does not depend on the good faith of the applicant. Consequently, 'even supposing that an application for a declaration of invalidity does form part of an overall confrontational commercial strategy, involving acts of unfair competition, the removal from the register of a mark which is either descriptive or devoid of distinctive character is a consequence of trade mark law', and cannot be avoided on the basis of the applicant's conduct.

The General Court rejected OHIM's arguments pointing to Article 9 of First Council Directive 89/104/EEC, which, like Article 54 of Regulation 207/2009, prevents the proprietor of an earlier mark from applying for a declaration of invalidity of a subsequent mark, where the proprietor has acquiesced, for a period of five years, in the use of the later CTM. The Court clarified that this provision 'merely regulates situations concerning two [conflicting] interests of a private nature'. Accordingly, it bears no effect on the absolute grounds for refusal established in the public interest by Articles 7(1)(b) and (c), 'which vitiate registration from the outset and which, in accordance with Article 52(2), are rendered inapplicable only if the mark in question has acquired a distinctive character after its registration'.

This Kat was affiliated for over a decade with a general practice law firm. Despite the passage of time, he remembers the first question asked by the first person whom he met on his first day at the firm. I was speaking with a corporate partner and our discussion drifted to IP licensing. Her comment was to the effect that, from her point of view, IP licensing was more or less like a real estate lease, with a little mutatis mutandis thrown in (the Latin is courtesy of your Kat). And then she continued—"Is there anything wrong with that?" This question is as relevant today as it was then. I suspect that many Kat readers have encountered a judgment or have been involved in a negotiation where the analogy is made. And so-- what's wrong with treating IP licensing as analogous to a real estate lease?

Analogical thinking, from case to case and even from statute to statute, was an early and central part of my law school education. But hard-and-fast rules remain elusive. Accordingly, permit me to approach the issue by considering two fundamental aspects of IP licensing and to ask the question—can we learn about them by analogy to real estate leases?

The first aspect is the notion of a non-exclusive licence. Within the context of an IP licence, the notion of non-exclusivity is clear enough. A licensor can grant either an exclusive licence (usually excluding use of the right of the IP right by the licensor as well as all other third parties) or a non-exclusive licence. In the latter case, more than one person has the right to use the same IP right. The analogy between an exclusive licence and a real estate lease seems possible, until one begins to consider how to treat a non-exclusive licence. This Kat's son rents a flat with three other roommates. Are the four tenants of the flat analogous to four non-exclusive licensees of a patent, trade mark or copyright? If the answer is "yes", then there may be a reasonable basis to recognize an analogy between real estate leases, on the one hand, and both exclusive and non-exclusive licences, on the other. But if the answer is "no", the analogy certainly breaks down with respect to a non-exclusive licence. Does this then invalidate the analogy between a lease and an exclusive licence as well, or are we permitted to limit the scope of the analogy to an exclusive licence only?

The second aspect is the grant of use of an IP right for less than the full right. An author can grant to Party X a licence for the right to publish her book in hard-back only, while granting to Party Y a licence to publish her book in paperback and digital form. Or a patentee can grant to Party X the right to use the invention for military applications only, while granting to Party Y the right to use the invention for civilian purposes. Is a grant of this type analogous to a lease that restricts the licensee, e.g., to non-commercial uses of the property (even if the zoning and other requirements of the particular jurisdiction do not dictate such a restriction)? The focus of the question is sharpened when we consider that the lease for residential use only does not allow the lessor to lease the same real estate to another person for commercial purposes. From this point of view, an analogy between a real estate lease and an IP licence that specifies a field of use of the right by the licensee seems more difficult to sustain.

Economists are wont to view an IP right, especially as part of a licence, as a form of public good. As such, the grant of an IP licence is both non-excludable (one cannot exclude others from use of the IP right) and non-rivalrous (the use of the IP right by one person doss not reduce the availability of the right to other persons). Viewing IP generally, and an IP licence specifically, as a form of public good (or is this also simply by way of analogy?) may help explain the apparent lack of a complete analogy between a lease and an IP license. Indeed, at least with respect to non-exclusive licensees and field of use restrictions, the ability to analogize to the law of real estate leases seems highly uncertain, if it exists at all.

The foregoing analysis leads this Kat back to the question that was asked of him on his first day on the new job more than a decade ago. How far, if at all, can one analogize between a lease and IP licence? Indeed, one wonders whether the apparent absence of a settled answer is a failure of legal scholars and commentators to come up with a satisfactory answer, or whether the uncertainty is built into the question itself, whereby the answer will always be tied to the particular circumstances.

More on legal reasoning by analogy per Edward Levi, "An Introduction to Legal Reasoning", here.
More on public goods, non-excludability and non-rivalrous, here.

Thursday, 30 May 2013

A few days ago the IPKat
reported news of last week's decision of stakeholders
representing the research sector, European technology SMEs, and open
publishers to withdraw from the “Licences for Europe” initiative, due
to disagreement over Commission’s approach to text and data mining (TDM).
In particular, in their letter of withdrawal this group of
stakeholders highlighted that

"any meaningful
engagement on the legal framework within which data driven innovation exists
must, as a point of centrality, address the issue of limitations and
exceptions. Having placed licensing as the central pillar of the discussion,
the “Licences for Europe” Working Group has not made this focused evaluation
possible. Instead, the dialogue on limitations and exceptions is only taking
place through the refracted lens of licensing."

An unimpressed Robert Schumann ...

This
Kat agreed that debate about TDM goes well
beyond the topic of licensing, and she concluded her post wondering
how things were going in the Working Group dealing with user-generated
content (UGC), as also this is something that is not confined to the sole
boundaries of licensing.

Her plea for help was promptly answered by a reader who participates in the UGC
Working Group. Writing under the musical nom
de plume of Robert Schumann [which
he/she probably preferred to the possibly overly EU-enthusiastic - yet soundalike - Robert Schuman], he/she provided this engaging (yet possibly worrisome) report from inside the UGC Working
Group:

"Given the IPKat's question
about the progress in the Licences for Europe Working Group on UGC and yesterday's remarks by Commissioner Barnier on the overall progress of the
Licences for Europe exercise, I thought that it would be interesting to give a
brief update on how the discussions on UGC are evolving.

... and a cheerful EUenthusiast Robert Schuman

As someone who participates in the
working group on UGC I am
somewhat baffled by the Commissioner's perception
that the Commission "has established a day-to-day structured dialogue
between those concerned with producing, distributing and using
copyright-protected content."

From the inside of this particular WG
it looks more like the complete opposite.

The 4 meetings that have taken place
so far have been rather unstructured, consisting almost exclusively of various
industry and civil society representatives explaining what they are doing and
what they would consider to be important.

On a number of occasions these
presentations have touched on legal issues related to UGC,
while in other cases they simply consisted of presentations of particular
business models (or complaints about other people's business models).

These presentations inevitably lead
to exchanges of opinion wherein the first participant disagrees with something
that was said in the presentation, which leads to another stakeholder to
disagree with that and so on (until the sandwich lunch is being served - after
which the same exercise begins anew).

This week's meeting saw the
Commission undertake a brave but ultimately half-hearted attempt to shift the
focus of discussion to a number of user cases prepared by civil society
representatives. Of the 10 or so user cases only three could be discussed
(without yielding much new insights) before the allocated time was up (as there
were 3 more business models which needed to be presented).

Kat-inspired Chef's fantasy lunch box

Given this, it is hardly surprising
that after its fourth meeting the working group has yet to identify the actual
problem for which it is supposed to find “specific,
short-term solutions”. While there has not been a mass exodus of
participants comparable to last week’s announcement related to the TDM Working Group, this
makes the overall outlook appear equally grim.

If the Commission wanted to be honest
with itself (and to do everyone involved in the process a huge favour) they
would concede that the setup does not work and shut down the working group (as
well as the one on TDM) at the upcoming mid-term plenary [this is scheduled to take place by 4 July]. Instead they
could focus their time and energy on the other two working groups[on cross-border access and audiovisual heritage institutions]that seem to be
much more productive (in my humble opinion coming up with solutions for two out
of four Licences for Europe issues would be a pretty respectable
outcome)."

Thanks 'Robert' for this report,
which is quite … ehm ... telling. Merpel hopes that at least the sandwich
lunches served during these meetings in Brussels were more substantial than the discussions that seem to have taken place therein.

If you are the person who sent the IPKat what looks like quite an urgent email yesterday and are still awaiting a reply, can you please re-send it? In a clumsy attempt to forward it to his personal account for subsequent attention, this Kat seems to have erased all trace of it. Please forgive him!

Around the weblogs. We all know, or pretend to know, about goodwill in brands, but fellow Kat has some big things to say about goodwill in patents and how to write it down in this piece for IP Finance on the Motorola Mobility patent portfolio. Over on the 1709 Blog, Ben Challis writes on why Taiwan's proposed copyright amendment covering the blocking of illegal content on foreign websites has raised the little island's temperature, here. MARQUES's Class 46 weblog carries this post by Niamh Hall on Ireland's plans for plain packaging of tobacco products -- this post carries a link to MARQUES's position paper on plain packaging in light of the European Commission's proposals for a Directive, and it may seem surprising that Ireland is going further than the Directive will require. Finally, guest blogger Chijoke Ifeoma Okorie's guest blog for Afro-IP on a test case to see whether Nigeria's extra-statutory requirements for trade mark filing are legal has already attracted some comments.

Why can't they be both? 1 "Compulsory licences: necessity or threat?" is the title of an article for Chemistry World which is the fruit of cooperation between various IP experts, including Spicy IP’s Prashant Reddy and our very own Darren Smyth. You can can read it here[Merpel doesn't see why compulsory licences can't be both a necessity and a threat, which indeed -- in her ever-so-humble opinion -- they are].

Why can't they be both? 2 Here's a reminder that "Creativity, Innovation and Competition: Legal Paths or Roadblocks?" -- a one-day event taking place in the River Room of King’s College London, Strand Campus -- is coming up on 20 June. Star of the show is Professor Herbert Hovenkamp, all the way from the University of Iowa. [Merpel doesn't see why creativity, innovation, competition can't be the cause of both legal paths and road blocks, which indeed -- in her ever-so-humble opinion -- they are]. Click here for further information and even more hyperlinks to even more information ...

TheJudge (sic) is holding a panel debate on litigation funding and insurance -- its third -- focusing this time specifically on IP. In the chair is this Kat's friend and colleague, sage Scot Campbell Forsyth (partner, Olswang LLP). There are still some places left. If you want to be one of the lucky few, click here.

Computer programs "as such" not to be inventions in New Zealand? A katpat goes to Earl Grey, Sarah Chapman and Raymond Scott of Antipodean law firm Simpson Grierson for the news that the "as such" exclusion of computer programs from being inventions (and therefore from patentable) in Europe is likely to be exported to that far-off land of regular-sized sheep and outsized rugby players. According to that firm's media release, clause 10A of the much-amended Patents Bill provides that:

A computer program is not an invention nor a manner of manufacture, only to the extent that a claim relates to a computer program as such;

A claim relates to a computer program as such if the actual contribution made by the alleged invention lies solely in it being a computer program [which is what this Kat thought the words "as such" meant when the European Patent Convention came into force and before the European Patent Office (EPO)'s Boards of Appeals, among others, decided to interpret them ...]; and

In examining a claim in a patent application that may include a computer program, the Commissioner of Patents must consider the contribution made by the computer program, the type of problem or issue that is solved or addressed, and other relevant factors [Goodness! What is a "relevant factor" and to what is it relevant? This provision is surely ripe for litigation, says Merpel].

This means that a computer program will not be a patentable invention if the sole inventive feature is that it is a computer program, explain Simpson Grierson. It will, though, be possible to obtain a patent for a computer program if the invention's contribution lies outside of the computer, or if the contribution affects the computer itself but is not dependent on the type of data being processed or the particular application being used. The media release continues:

It was a great washingmachine -- but Arthur neverdid find his missing sock

Two examples of alleged inventions are given in the new clause 10A. In the first, a claim for a better method of washing clothes is implemented by a computer program in a washing machine. As the contribution to the method of washing the clothes does not lie solely in the computer program, the claim would involve a patentable invention. In the second, a claim for generating documents involves a computer asking questions and processing information to produce the documents. As the contribution lies solely in the computer program, it would not be an invention under clause 10A [It would be churlish to argue with an example that reflects legislative intention, but this Kat knows more than one patent attorney who would be quite capable of finding a way or two of expressing this as lying outside the "as such" provision. Adds Merpel, isn't the real problem here one of presentation of information -- and can it really be said that a computer program which achieves another aim that falls beyond the scope of being an invention is therefore caught by the "as such" proviso?].

These amendments align the Bill more closely with the approach in the United Kingdom. Guidance on the application of clause 10A should therefore be able to be sought from United Kingdom case law [which itself has been known to change from time to time, and which is in any event now developing with an eye to consistency with rulings of the EPO and other national courts in Europe].

However, clause 10A is narrower than the approach to patentability of computer programs taken in Australia. This conflicts with the New Zealand government's intention to more closely harmonise intellectual property and business laws with Australia [But why would they want to do this, wonders Merpel. Wouldn't they get a competitive advantage if they gave patents to inventions that weren't patentable in Australia ...?].

When will all of this become law? Says the media release, the Bill is (currently) expected to be passed and come into force in 2013. You have been warned.

Wednesday, 29 May 2013

The afternoon sessions of today's conference on "Best Practices in Intellectual Property 2013: International Perspectives on Creating and Extracting Value", were focused on monetisation and enforcement issues and this Kat thought it best to post them on IP Finance (here and here) and PatLit (here).

The third session of today's conference, moderated by Daniella Atzmony (In House IP Managers Forum) on Best Practices in IP focused on various aspects of costs. Daniella handled this session by making it a communal Q and A one:

Q: Given a limited budget, where would you file?
Elisabeth Greiner and Rainer Friedrich (df-mp, Munich) explained how the classical European patent, covering 40 countries, was giving way to a new scheme which offered a choice of routes, including the unitary patent which had substantially less geographical coverage. Translation costs for the new system would certainly be lower, except in the event of litigation in countries for which no translation had previously been made available. Much will depend on the level of renewal fees, it being reckoned that if a patent is sought for five or more EU states, excluding Italy and Spain, it would probably be cheaper to go for the new unitary option.

Patent attorney Gregory Scott Smith (Smith Risley Tempel Santos, USA) had several pieces of advice about the US. (i) provisional filings are still alive and well -- they are an inexpensive way of protecting priority and minimising cost -- and start-ups have an 'extended provisional' if they file a provisional as a non-provisional, making sure there's a claim in it, and pay their $70; (ii) priority filings, for just $2,000 for small entities, will give you a yes-or-no in just five months; (iii) don't file multiple dependent claims.

Justin Davidson (Norton Rose) then answered the question regarding the Far East, a regional which he divided into three jurisdiction: established (Hong Kong, Japan, Singapore, South Korea and Taiwan), fast-developing (China, Malaysia) and work-in-progress (India, Indonesia, Philippines, Thailand and Vietnam). Following a statistical breakdown of filings in the area, Justin estimated that China had travelled "a hell of a long way" but was "not quite there yet". Damages for patent infringement are still very low and the elephant in the room is corruption -- though the Zhejiang Anti Graft Brochure has been issued to some members of the judiciary in order to remedy things.

Micaela Modiano (Modiano & Partners) then gave some tips on keeping patent costs down. She reviewed the theory and practice of the Patent Prosecution Highway (PPH), which works well in a best-case scenario but is apparently unpopular with the European Patent Office, where examiners have indicated that the work of examiners in other patent-granting offices is more often than not non-useful. Some areas of technology are often difficult to patent whether the PPH is contemplated or not: Micaela cited business methods. software inventions and surgical/diagnostic methods in this context.

Brenda Matanga (BMatanga IP Attorneys, Zimbabwe), opening with a disclaimer that she was being paid neither by OAPI nor by ARIPO, advocated patented in Africa as a way of capitalising on unexploited business opportunities. She gave a very positive account of the mechanics of patent filing in those two systems -- though she confessed herself puzzled (as is this Kat) as to why Nigeria and South Africa have continued to hdld themselves outside ARIPO.

Q. What are the specific dos and don'ts for your jurisdiction?
Elisabeth Greiner and Rainer Friedrich counselled against making amendments to a patent's claims. The European Patent Office has found some 50% of amendments to be inadmissible, a particular problem being added subject matter. Also, avoid lists and select your preferred embodiments. Finally, watch out for "propheti"c applications, if there is a lack of plausibility of the invention at the date of filing.

Aaron Hurwitz (Kangxin Partners Beijing) then addressed the position in China. Regarding utility model filings, statistics have reached epic proportions. Almost all are filed by the Chinese, not by foreigners, despite their usefulness and their low cost. Grant is achieved in a year, and you can file for both a 'real' patent and a utility model simultaneously. Aaron then mentioned enforcement: the past five years have seen real improvement, despite the war stories. The domestic market for IP protection is now significant, which has advantages for foreign IP owners too.

Following Ruud Peters' talk, a panel of business leaders offered their own perspectives on how to build and manage an IP portfolio, in a session moderated by Einav Zilber (Applied Materials Israel).

First up was Eric J. Siecker (Caterpillar), who emphasised the sensible need for an IP strategy to match the business. Whether obtaining, exploiting, monitoring or protecting IP, the same attributes and strategy objectives had to be reflected. Speed and cost are important criteria, but doing things more intelligently is the most important criterion for making IP portfolio-related decisions, especially when faced with a rapidly expanding IP portfolio that is growing more rapidly than the business itself. Don't just focus on big inventions, at least in a sector in which your business is evolutionary rather than based on major changes: there is much value to be extracted from smaller ones. If you have a limited budget -- as even a company like Caterpillar does -- you have to decide whether to file lots of applications or to limit your filing strategy ab initio. Understanding the competitive landscape is important: search it early, search it often.

Andrew Browne (Shell) then spoke on his vast company's protection and licensing policy, which involves having to tread very carefully in countries in which the level of IP protection is still at an immature stage. Shell's IP strategy mirrors that of all the other major companies. IP is represented at Board level; it's important that even SMEs have a structure that enables the right message to be delivered at Board level. Shell divides its IP between total exclusivity, shared exclusivity (where third party IP is needed in order to exploit home-grown IP) and freedom of action (where no market exclusivity is available). Monitoring the market is all very well, but most important is to know what to do with the information about your competitors once you've got it. You also have to watch out for 'wild card' events, which may torpedo an IP strategy. Non-R&D gatekeepers are vital if contamination through the communication of trade secrets is to be avoided.

Luc Savage (VP, IP at Orange) then shared some of his company's thoughts with us, this time from the perspective of a service provider that worked closely with academics and customers in delivering its diverse services. Orange has built a portfolio of some 8,000 patents, which is growing rapidly, which raises the question why it grows its own IP portfolio rather than buying in the technology it needs from third parties -- particularly since Orange's favoured R&D strategy is driven towards an open innovation model. In all procurement situations, the IP of Orange's partners must be taken into consideration too.

Next to speak was local, being Michael Faibisch (senior IP counsel, Marvell Israel). Just six years ago, communications and chipmaker Marvell held only 20 patents, but now it receives around 60 a year and holds more than 300, being a recognised leader in its field. Michael said that the best way to jump-start the patenting process. First ask, "is there a commercial advantage in this innovation?" If the answer is "yes", then ask "is anyone else doing the same thing?" If no, then it's time to consider the question of patentability. Early submission of disclosures within the company, using ordinary everyday engineering documentation -- even in PowerPoint -- is encouraged. Filing of provisional applications and securing a filing date is the preferred approach, keeping Marvell's system as close to the requirements of US patent law as possible. Every invention is examined by an in-house patent attorney; applications are pursued by outside counsel but their work is closely scrutinised by in-house counsel.

Last to speak in this session was Oleg Korshunov (NOVA Measuring Instruments), whose company now holds round 100 US patents, very few of which are developed in conjunction with either customers or suppliers. NOVA looks at existing products and seeks to cover competitors' technologies with its own patents, which are often defensive. The company's policy is to avoid initiating litigation, particularly in the US where it is very expensive, but to use it as a counterbalance to competitors' technologies. NOVA uses external drafting services but handles its own disclosures.

Some quotable quotes:

"Abandon the 'romantic' view -- this is business, where there is no place for sentiment" (Eric J. Siecker)

"Shell is absolutely paranoid about trade secrets because of contamination risks. The same goes about disclosures of technical information to third parties" (Andrew Browne, Shell)

"We clean our portfolio on a regular basis" (Luc Savage, Orange)

"In IP litigation it's very hard to get support from top management" (Oleg Korchunov, NOVA Measuring Instruments)

Its copyright
provisions - in particular: orphan works and extended collective licensing
(ECL) - have attracted a good deal of controversy, both on the blogosphere (here and here) and in the real world.

When you speak of the ERR Act, it is doubtful whether there is room for Japanese writer Haruki Murakami's observation that “If you look at things from a distance, most
anything looks beautiful”. Indeed, while this Kat is happy to host an
Australian perspective on the ECL system envisaged by the ERR Act, she is not
sure that this sees it as particularly beautiful.

Katfriend John R Walker, an Australian professional artist exhibiting
for more than 30 years, offers an analysis on what the ECL system might mean –
among other things - to collective rights management in the UK. Here's what John
has to say:

In 2006 Britain
introduced an Artist Resale Royalty [ARR] scheme. This scheme
involved a radical re-writing of the normal understanding of exclusive
individual rights. Under the UK scheme usage of this right is compulsory and
collective management of the right is also compulsory. Further, rightsholders
have no rights over the terms of usage of the right; in fact, the only thing
that rightsholders have is a right to remuneration. Britain’s ARR scheme can be
seen as a prototype of much wider reaching changes to the meaning of copyright
currently being discussed in the UK.

In 2009-10,
Australia implemented an Artist Resale Royalty scheme that was
initially modelled on the UK’s ARR scheme. In January 2013, Senator Gary
Humphries placed questionson notice to the relevant
Australian Federal Arts Minister, seeking details about the operations of the
Australian ARR. The answers supplied reveal some serious structural problems
that are inherent to the scheme’s origins in the UK compulsory, collective
management model.

A busy (and clueless) Bruno while trying to get a clue about royalty payment schemes

The kernel of the
nine questions was Question 8:

If the scheme can deliver the smallest individual
artist royalty payment at $50, with a 10 per cent administration fee of
$5, why does the scheme charge an administration fee of $1 000 to deliver
an individual royalty payment of $10 000?

For constitutional
and legislative reasons, Australia’s ARR does not involve compulsory,
collective management, and therefore the large cross-subsidy outlined in
Question 8 is not compulsory.

The Australian
experience of ARR has revealed just how large a cross-subsidy of uneconomic
management costs is intrinsic to the UK’s compulsory, collective management
model. The answers to Senator Humphries questions have revealed that much - in
fact most - of the royalty payments made to date are well below the
economic-to-collect-and-deliver threshold and therefore the scheme’s viability
rests almost entirely upon over-charging on the delivery of the top 20% of
royalty payments so as to subsidise the costs of the large amounts of
economically unviable work being done by management.

The following
information is from a recent letter that I sent to Senator Humphries, where I
provided analysis and assessment of the information provided by the Arts
Minister to the Senator’s questions:

“The answers provided to my initial series of
questions show that of the approximately 5,000 royalty payments to December
2012:

·the middle, approximately
2,400 royalty payments, had a total value of $396,964 - an average value of
about $164 each; and

·the top 600
royalty payments had a total value of $296,772 - an average value of $495
each.

The average transaction cost of the scheme is given as
$30 which equates to the transaction levy (@%10) on a $300 royalty payment.

Most of the scheme’s transactions are well below the
current economic-to-collect-and- distribute threshold. Many of the royalty
payments (2,000 or 40%) were of an average value of just $55 each and it is
likely that the median value for individual royalty payments will be found to
be around $100 (or less).

Therefore about half of the scheme’s
transactions are generating transaction fees that are one third or less of
the average transaction cost of $30 (average transaction costs dropping to
$10 or less is not likely, unless the scheme is redesigned).

Of the top half of individual royalty payments, many
would be between $150 to $300 each. Therefore many of the scheme’s remaining
transactions are generating transaction fees that at best break
even with the average transaction cost of $30.

Currently the scheme’s chances of long-term viability
rest on thelarge cross-subsidy, that is intrinsic to the scheme’s
service ‘fee’ structure, growing to the point that it can largely underwrite
the costs of most of the work done by the scheme. For good constitutional and
legislativereasons this cross-subsidy is voluntary for artist
right-holders.The long-term viability of ARR is questionable.”

In conclusion,
compulsory collective management and /or quasi-compulsory - such as ECL -
management, intrinsically create a need for large cross-subsidies. In the case
of ARR, there is no justification at all for compulsory cross-subsidy. In the
case of some of the proposals currently being discussed in the UK, the question
becomes:

Why should any genuine member
collection society take on the large costs of administering thousands of small
royalty payments for people who are not members of that society?

In fact, normally,
if a management of a members’ society did so, it could be justly accused of
being unprofessional by wasting money on non-members (in its submission to the copyright
consultation in 2012, the ACLS details its concerns about the costs to members
and dubious benefits of taking on an ECL type scheme)

Waiting for his royaltypayment (and some food)

In Australia, it
is likely that the next government will move to make the Australian ARR a voluntary,
opt-in collective management scheme. Doing this will do much to contain the
scheme’s current potential for reverse economies of scale. And, voluntary
collective management is almost always more effective and efficient than
mandated collective management.

IPKat Policies

This page summarises the IPKat policies on guest submissions and comments. If you have posted a comment to one of our blogposts and it hasn't appeared, it may be because it doesn't match our criteria for moderation. To learn more about our guest submissions, comments and complaints policy and the procedure for lodging a complaint click here.

Has the Kat got your tongue?

Just click the magic box below and get this page translated into a bewildering selection of languages!